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The Basics of Investing (for People Who are Scared to Invest): Part 2

Investing is one of those things that can cause panic to many people. It does not matter if you are financially savvy or have never heard the first thing about the stock market. Some things may not be the easiest things in the world to understand, but that doesn’t mean that they are less important. Believe me, I was once a financial nit-wit when it came to all things that are considered investments. After a lot of research, I was able to acquire knowledge on the matter. In the first part of this series, I talked about some of the basics of investing. Here are a few more terms to help you on your journey to becoming an investment superstar:

Mutual Funds

These types of investment are a very popular choice among investors who are new to the game. In short, you give your money to an in investment company who then pools the money from other investors to buy larger shares of other companies. The whole premise is that the power of many overcomes the power of just one investor. This is a big reason why mutual funds are popular and favored by many. Diversification is key here as you are able to spread your money around in many places.

401(k) Accounts

Many people receive this type of account through their workplace. It is very simply put a type of pension plan where the owner invests his/her own money with usually the employer also contributing. It is one of the most common forms of retirement accounts out there and is an easy way to save for retirement since contributions are usually deducted for the paycheck. One of the few downsides is that you normally need to have an employer who offers this kind of plan and returns are heavily influenced by how the stock market is faring.

Roth IRA Account

This is another type of investment vehicle that is generally used for retirement. One of the great advantages to this account is that anyone can have one. Many companies offer IRA accounts and it is all about deciding how high your risk tolerance is to changes in the market. Also, please note that you can generally only contribute $5,500 a year to this type of account. Another big advantage to this account is that when withdraw the funds when you retire, they are not taxed by the government as many other investments are. Once again, these accounts are heavily influenced by the stock market and investors must be aware of this.

Now that wasn’t so bad, was it? Acquiring more knowledge of how to invest can only help you increase wealth later down the line. As always, taking the time to do your own research to find out which investment vehicle is right for you. Everyone has different needs and wants in how they want to grow their money. Find the right investment tool for you and you and your future self will thank you. Stay tuned for my next part of this series that will help turn your financial fears into confidence.